Samsung Capital has launched Korea's first cross-border securitization of auto loans by means of a conduit transaction, via arranger ING Barings. Credit Creator Ltd, a Cayman Islands special purpose vehicle, issued $187.5 million notes which are guaranteed by Financial Security Assurance (FSA).

The notes are secured by a $187.5 million credit-linked note (CLN) issued by ING Bank. The reference obligation for the CLNs is a $187.5 million auto loan-backed bond, issued by Credit Creator, a Korean limited-liability company.

The terms of the CLN will primarily mirror those of the senior Korean bonds. Credit Creator will use the proceeds of the auto loan-backed bond, and from the sale of Korean won of W42.8 billion subordinated bonds to Samsung Capital to purchase auto loans from Samsung Capital, the originator. The underlying portfolio of fixed- rate auto loans was estimated to be worth W285.5 billion at the initial cut-off date, January 31, 2001.

"The swap structure was preferred by ING, because it allowed the bank to manage its foreign exchange and convertibility risks better," said an official at ING Barings in Hong Kong. "The CLN allows us to mitigate certain risks with respect to convertibility."

ING has provided a Korean won/U.S. dollar swap to hedge the currency exchange and interest rate risks associated with the won denominated auto loan pool. This type of swap is difficult to obtain because of illiquidity in the swap market. It has also impeded the launch of cross-border securitizations from Korea. FSA has provided a swap policy that will cover shortfalls in won-denominated interest or ultimate principal payments.

The transaction is also the first Korean cross-border securitization that uses a revolving structure, though this has been used in Korean domestic securitizations. Collections on the auto loan receivables will be used to purchase newly originated auto loan receivables. This is also the first triple-A rated issuance from a Korean originator backed by domestic Korean won receivables, and the first time a A1+/P1 program has involved a Korean originator and domestic Korean won receivables.

"Because this is the first cross-border securitization of Korean assets this creates a motivation for others to follow," said the ING official. "Korean issuers should be interested because this is a different source of finance, that allows longer terms of finance. Domestic deals tend to only have a two or three year final maturity."

This deal has a final maturity of five years and an average life of 3.6 years. Moody's Investors Service and Standard & Poor's rated the notes Aaa/AAA.

"The costs on this deal are competitive, if not better than the domestic market, and it is an opportunity to educate Korean issuers. We can apply international knowledge and inform issuers how consumer finance runs outside Korea, and give them an idea of what interest rates people charge," the ING official said.

More cross-border consumer loan securitizations are expected from Korea, involving receivables such as credit cards, unsecured consumer loans and auto loans. The ING official said "We definitely expect more cross-border consumer loan securitizations and would like to close one or two deals at least." With regard to timing he added, "We would like to get in earlier rather than later."

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